Yesterday morning I looked at the weather channel in dismay when I saw the image of rainy clouds throughout the day. But when I glanced below at the numbers, which predicted a 30% chance of precipitation, I breathed a sigh of relief. An hour later I arrived at my destination, stepped outside my car, and began to enjoy the sunny clear skies.
My personal experience reinforced, once again, a core value in business. While theory, vision, and strategy are important, you need to be able to back up strategies and decisions with real numbers.
The availability of pay-per-use business solutions appeals to this need to make decisions based on financials. If the cost of a pay-per-use solution not only decreases upfront costs, but even saves money in the long-run, then for many SMBs the decision of adoption follows naturally. However, despite my realization of the simple financial attraction of on-demand payments, I did not understand the nuances involved until I read CloudTweak’s “Mathematical Proof of the Inevitability of Cloud Computing.”
Even if you do not want to read through the entire mathematical proof, the following key points can be enlightening in your next evaluation of when to adopt a cloud solution, whether it be cloud computing or cloud telephony.
The following statement reflects my understanding prior to reading the article.
To jump right to the punchline(s), a pay-per-use solution obviously makes sense if the unit cost of cloud services is lower than dedicated, owned capacity. And, in many cases, clouds provide this cost advantage.
Idea #1: Consider the peak-to-average ratio of the demand curve.
Counterintuitively, though, a pure cloud solution also makes sense even if its unit cost is higher, as long as the peak-to-average ratio of the demand curve is higher than the cost differential between on-demand and dedicated capacity. In other words, even if cloud services cost, say, twice as much, a pure cloud solution makes sense for those demand curves where the peak-to-average ratio is two-to-one or higher. This is very often the case across a variety of industries. The reason for this is that the fixed capacity dedicated solution must be built to peak, whereas the cost of the on-demand pay-per-use solution is proportional to the average.
Idea #2: Consider the length of the peak’s duration.
Also important and not obvious, leveraging pay-per-use pricing, either in a wholly on-demand solution or a hybrid with dedicated capacity turns out to make sense any time there is a peak of “short enough” duration. Specifically, if the percentage of time spent at peak is less than the inverse of the utility premium, using a cloud or other pay-per-use utility for at least part of the solution makes sense. For example, even if the cost of cloud services were, say, four times as much as owned capacity, they still make sense as part of the solution if peak demand only occurs one-quarter of the time or less.
For readers with a real mathematical mind, you will love reading CloudTweak’s entire article.
Image: Michelle Meiklejohn / FreeDigitalPhotos.net
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- Cloud Services – Framing the Question of Trust
- End of the Year Thoughts about Cloud Computing… and Cloud Telephony
- Voice Quality is Key to Success of Cloud Telephony
- Analogies of the Clouds – Cloud Telephony: Cloud Computing
- Three New Trends of Cloud Contact Centers
